Christopher Wooden has a monitor document of recognizing speculative bubbles. He referred to as the dotcom increase, Japan’s credit score bubble and the U.S. housing bubble earlier than a lot of his contemporaries. So when he warned of an “AI capex arms race” on the Fortune Innovation Discussion board in Kuala Lumpur, Malaysia on Tuesday, the viewers paid consideration.
Wooden, now the worldwide head of fairness technique at Jefferies Hong Kong, mentioned that the arms race started in 2023 when Microsoft invested in OpenAI. He argued that buyers are lacking an important level: That just about all the cash made up to now is accruing to not the businesses constructing AI merchandise, however to these promoting the infrastructure behind them.
“You need to personal what I name the picks and shovels of AI,” Wooden mentioned. It’s firms like Nvidia, these producing semiconductors and constructing knowledge facilities, which have made actual income from the AI increase.
“However it’s utterly unclear to me who’s going to monetize and earn cash out of all this capex,” Wooden continued.
This units up what he views as an almost-inevitable over-investment bust—although when markets lastly lose endurance with ballooning spending with out outcomes is unknown.
Wooden’s already repositioned his personal portfolio. He just lately offered his Nvidia holdings, not essentially as a result of he believed shares have picked, however as a result of their five-fold beneficial properties already priced in extraordinary expectations.
His AI publicity is now concentrated in China, the place he believes firms are approaching the know-how extra pragmatically. “You want two issues to do AI: compute and power,” he mentioned. “The Chinese language are way more forward in power than the U.S. is forward in compute.”
Whereas the U.S. nonetheless leads by way of the ability of its superior chips, Washington’s semiconductor export controls, in place since late 2022, could have inadvertently strengthened China’s place. By chopping Chinese language companies off from U.S. chips, the coverage each disadvantaged American tech firms of their greatest prospects and jolted Beijing into accelerating its home semiconductor ecosystem.
“[Nvidia CEO Jensen Huang] has made it fairly clear that Huawei is a way more formidable competitor than was the case three years in the past,” Wooden famous, including that managed Nvidia chips had made their approach to China anyway via secondary channels, regardless of U.S. controls. “It’s a large personal aim.”
Huang has repeatedly praised Chinese language chipmakers, together with Huawei. He referred to as the Chinese language tech large “one of the formidable know-how firms on this planet” in April.
China’s AI technique can also be diverging from the U.S. Moderately than chase the elusive aim of synthetic basic intelligence, Chinese language companies, spurred by successes like DeepSeek, are channeling sources towards sensible, commercially viable functions, many constructed on open-source fashions. “They’re not making an attempt to construct the proper LLM,” Wooden mentioned. “It’s all about functions.”
U.S. tech giants, in contrast, are pouring cash into parallel efforts to construct proprietary frontier fashions, a shift that’s basically altering their economics. For years, Large Tech firms rested on “asset-light” enterprise fashions, every in their very own area. Now, Wooden mentioned, the hyperscalers are competing in the identical AI area whereas transferring to “asset-heavy” fashions.
Different panelists on the Fortune Innovation Discussion board echoed Wooden’s feedback on China’s AI technique. “China is targeted a bit extra on diffusion, whereas the U.S. focuses extra on perfection,” Chan Yip Pang, government director at Vertex Ventures SEA and India, mentioned on Monday throughout a dialogue on the competitors between open-source and closed-source fashions.
Why are U.S. tech giants spending a lot? Alternative is one reply. Concern is the opposite. “They’re scared of being disrupted,” Wooden mentioned. “There’s huge FOMO. That’s what’s driving this arms race.”
